Fleet Management News & Business Info | Commercial Carrier Journal
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COMMERCIAL CARRIER UNIVERSITY cash a few months ahead, such as income tax payments. The returns are small – only 3 to 4 percent – but you have little concern over losing any value on your investment. Another bank product is the repurchase agreement. Banks keep an inventory of U.S. Treasury securi- ties and can sell them to you with the agreement to repurchase them in a week or a month. You might invest $99,600 in such securities, and the bank agrees upfront to buy them back in 30 days for $100,000. Returns may be only in the range of 3 to 5 percent. Using discounts Taking purchase discounts can pay off handsomely. Scour your supplier and vendor statements to see if they offer early payment discounts. Even a 1 percent discount for payment in 10 days with net due in 30 days will offer a fantastic – and risk-free – return. If, for example, you owe $10,000 but can pay $9,900 if you pay within 10 days, you earn $100 for paying early. In effect, you are earning 18 percent interest on your money for 20 days. If anyone offers 2/10 net 30, take the discount. That's equal to a 36 percent annual interest rate. It may even make sense to take an advance on your line of credit at 10 percent to earn the discount. Longer-term options If you have exhausted short-term strategies and still have a surplus, you might investigate other options. A good starting place might be an investment policy statement. Get your banker or investment adviser to help prepare one. A policy statement is a brief list- ing of what your investment time frame might be and a listing of what types of investments are appropri- ate for this time frame and for your company. Most importantly, a policy outlines investments that are not appropriate. It can be a written guide for your internal managers and out- side investment advisers. A fundamental principle of invest- ing is that to get higher rewards, you must take more risks. If you are considering bonds or equities, consult a CPA, certified financial planner or investment adviser that work on a fee-only basis. Fee-only advisers charge by the size of the portfolio, so their reward depends on increasing your portfo- lio, not getting you to buy something because it pays a commission. In summary To invest excess funds effectively, you must know the period dur- ing which your cash is available. Different investments are appropri- ate for different time periods. And there may be great investments inside your own business – in the form of reducing your debt or taking discount opportunities. Sponsored by through clear advice on basic and advanced business practices. University is to provide you with an in-depth road map for success The goal of Commercial Carrier WWW.COMMERCIALCARRIERUNIVERSITY.COM In cooperation with Visit WWW.CCUMANUAL.COM to purchase a set of five business manuals. The manuals are available on usb or via digital download. Produced by How to use Financial Statements How to Evaluate Life Cycle Costs How to Manage Cash Flow How to Plan for Succession How to Write a Business Plan MANUAL TOPICS: COMMERCIAL CARRIER JOURNAL | JANUARY 2012 65